Commission acknowledges numerous competitive downsides to deal, but still says “No Problem”
In recent years the FCC could justly be accused of never having met a merger it didn’t like. While regularly grousing, huffing, and puffing about consolidation in the wireless industry, the FCC has just as regularly approved all mergers and acquisitions that came before it, with the notable recent exception of the AT&T/T-Mobile merger. This “raise eyebrows but approve” policy is one of the reasons that the wireless industry in the United States is more consolidated than at any time since the break-up of the old AT&T more than 25 years ago.
By mustering up its resolve to derail the AT&T deal, the Commission gave hope to progressives that the FCC and Department of Justice had gotten some trust-busting mojo. But the FCC seems to have now retreated back into its “anything goes” posture. The most recent example is its approval of Verizon’s acquisition of large chunks of AWS spectrum across the United States.
In a blockbuster deal, Verizon proposed to acquire a host of AWS licenses from SpectrumCo (composed of several major cable companies) and Cox Cable, who had bought the licenses in a 2006 FCC auction. The cable companies had intended to use the spectrum to launch their own wireless operations in competition with the major cell phone carriers. After years of trying unsuccessfully to develop a workable business model, however, they decided to throw in the towel and sell out to Verizon. In a separate component of the deal, Verizon sought to acquire 30 or 40 PCS and AWS licenses from Leap Wireless in exchange for Verizon’s 700 MHz license in Chicago. When it became clear that there was some pushback from the Commission, Verizon quickly entered into a deal with T-Mobile to offload 47 of the AWS licenses it would otherwise be getting from the cable companies. This lessened Verizon’s spectrum agglomeration considerably in key markets.
In its73-page (not including appendices) Order, the FCC candidly assessed and acknowledged the problems posed by Verizon’s acquisition. The Commission noted that other carriers already have problems negotiating roaming deals with Verizon and that the originally proposed acquisition “would constitute a concrete potential harm to future competition.” It found that the acquisition of AWS spectrum “causes significant competitive concerns.” It found that the operating agreement between Verizon and the cablecos “had the potential to reduce competition and harm consumers.” All these considerations seemed to call for denial of the proposal.
But the Commission backed away from denial by determining that palliative measures proposed by Verizon mitigated the various competitive concerns. Those measures included:
First, Verizon’s proposal (noted above) to get rid of some of the AWS spectrum it was acquiring.
Second, Verizon’s commitment (made to counter charges that it already had plenty of spectrum that it is warehousing) to an accelerated build out schedule for that block.
Third, a further Verizon commitment to make data roaming available on reasonable terms for five years, subject to lots of technical qualifications.
And fourth, a DOJ-imposed requirement that Verizon modify its operating arrangements with the cablecos to ensure that it and they would still have incentives to compete against each other.
To this observer, none of these sops thrown to the regulators really neutralized the significant competitive harms the Commission itself had identified. The voluntary roaming commitment, for example, is not only limited to a five-year term but simply replicates the current scenario where competing carriers are unable to agree with Verizon on what constitute “commercially reasonable” terms. Interestingly, although Verizon announced in the course of the proceeding that it planned to sell off its 700 MHz A and B block holdings, the Commission did not insist on a commitment in that regard.
Also of interest is the Commission’s treatment of Verizon’s foreign ownership. Vodafone, a British company, owns 45% of Verizon Wireless. Under the analysis adopted by the Commission in its newly adopted Forbearance Order (which we reported on in August), it is unlawful for alien entities to directly or indirectly own non-controlling interests greater than 20% of a common carrier licensee. To avoid that restriction, the FCC decided that it would in the future forbear from enforcing that portion of the Act as long as the Commission reviewed and approved the alien ownership, which the Commission promptly did here for Vodafone. (Prompt is right – it approved Verizon’s foreign ownership within six days of the new policy being adopted. Now that’s service!)